Environmental and social trends look set to dominate the news cycle over the coming years. We think it’s important for investors to think about the impact this could have on their investments.
There are two sides to this coin.
First, there are the opportunities that these changes will create. For example, nations around the world have committed to reduce their emissions with the aim to limit global warming to a 1.5°C increase from pre-industrial times. As a result, clean energy technology development and adoption has surged at an unprecedented pace.
Since 2020, electric car sales have grown 240%. Over the last two years, solar panels have become more efficient, producing almost 50% more energy. As consumers become increasingly focused on renewable energy sources and sustainable technologies, investors could benefit.
On the other side of the coin, investors can identify and mitigate long-term risks using environment, social and governance (ESG) factors in their investment analysis.
Companies that perform poorly could face fines, lawsuits, reputational damage, or even operational disruptions. All of which can impact their financial performance. By assessing ESG risks, investors can make more informed decisions and reduce their exposure to potential losses.
In fact, studies have shown that businesses with good sustainability practices tend to perform better in share price terms.
Here are three responsible funds that we think are making the most of sustainable opportunities and mitigating their ESG risks.
This article isn’t personal advice. Investments and any income they produce will rise and fall in value, meaning you could get back less than you invest. If you’re not sure an investment is right for you, ask for financial advice. Remember, past performance is not a guide to the future.
Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund and its risks, you can use the links to their factsheets and key investor information below.
Learn more about ESG and other responsible investing
Ninety One UK Sustainable Equity
Managed by Matt Evans, who has over 20 years’ experience in UK investing, Ninety One UK Sustainable Equity looks to grow your money by investing in companies making positive societal or environmental impacts.
When choosing companies for the fund, Evans firstly excludes businesses with significant negative impacts. This includes controversial weapons, tobacco, oil & gas and coal. Violators of the UN Global Compact principles (a UN pact on human rights, labour, the environment and anti-corruption) are also excluded.
The manager will then assess companies across three pillars – financial strength and sustainability, the impact of its operations and, the impacts of its products or services. He takes this approach because he believes the impacts that companies have, both positive and negative, will become more important for the way they’re valued in the future.
Current investments include Oxford Instruments, a company that provides technology solutions to industrial companies and scientific researchers. Its key focus is turning science into products that contribute towards building a more sustainable future. For example, it supports battery research and manufactures with a range of analytical and microscopy techniques. It also provides technologies that enable higher efficiency solar-energy cells.
Investors should note the manager’s flexibility to invest in smaller companies and derivatives adds risk.
Find out more about Ninety One UK Sustainable Equity, including charges
Ninety One UK Sustainable Equity Key Investor Information
Troy Trojan Ethical Income
Hugo Ure has managed Troy Trojan Ethical Income since launch in 2016, focusing on the UK stock market but with the flexibility to invest up to 30% of the fund overseas.
Ure won’t invest in companies deemed unethical, like those with significant involvement in armaments, tobacco, pornography, fossil fuels, alcohol, gambling and high interest lending. He also conducts ESG analysis on each company to achieve a deeper understanding of the risks.
Once the team has identified a company that meets their criteria, they consider its financial strength, how managers’ interests are aligned with those of shareholders and, finally, whether its shares are available at an attractive price.
One of the fund’s top holdings, Experian, aims to improve financial health for everyone by promoting greater financial inclusion and helping consumers access fairer credit. By doing so, the company delivers a positive societal impact whilst also making money for its investors.
The fund takes charges from capital, which could boost the income, but reduces the potential for capital growth. The manager can also invest in derivatives and smaller companies, which adds risk.
Find out more about Troy Trojan Ethical Income fund, including charges
Troy Trojan Ethical Income Key Investor Information
Legal & General Future World ESG Developed Index
Legal & General Future World ESG Developed Index aims to track the performance of the Solactive L&G ESG Developed Markets Index. This index is made up of over 1,400 companies from across the globe, currently focused around sectors like technology, pharmaceuticals and financials.
The index increases its weighting in companies that score well on a variety of ESG criteria – like the level of carbon emissions generated, the number of women on the board and, the quality of disclosure on executive pay. It also reduces the allocation to companies that score poorly on these measures.
The fund won’t invest in persistent violators of the UN Global Compact Principles (a UN pact on human rights, labour, the environment and anti-corruption) or companies involved in tobacco, controversial weapons (such as cluster munitions, anti-personnel mines and chemical and biological weapons) or civilian firearms.
The fund also avoids companies that make more than a fifth of their revenues from thermal coal and oil sands. It’s also managed to achieve at least a 7% reduction in carbon emissions per year until 2050.
Investors should note the fund invests in smaller companies, which adds risk.
Find out more about Legal & General Future World ESG Developed Index fund, including charges
Legal & General Future World ESG Developed Index Key Investor Information
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Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.